LAWRENCE – The city is $204 million short of what it needs to pay its pension obligations, making it the third most underfunded system in the state, according to a recently released report by a public policy think tank based in Boston.
“In terms of funding levels, Lawrence is 103 of 105” among public pension systems in Massachusetts, said Iliya Atanasov, a finance specialist at the Pioneer Institute who co-wrote the report. “This should be very concerning to employees and taxpayers who are supposed to fund the difference. As we’ve seen from Detroit, a large part of Detroit’s debts and liabilities came from under-funding its pension plans.”
Detroit declared bankruptcy on July 18, the biggest United States municipality ever to do so. The size of its unfunded pension obligations is disputed, but may be as high as $3.5 billion.
In Lawrence, the Pioneer Institute also warned that the city has given itself “little breathing room” to meet the 2040 deadline the state set for all public pension systems to be fully funded. Lawrence projects it will be fully funded by 2038.
The good news for Lawrence is that its pension fund earned a 14 percent return last year, increasing its balance to $140 million. Investments by the Lawrence pension fund are managed by the state, which took over the assets of under-performing public pension funds around Massachusetts after the 2008 stock market collapse devastated most of them.
Despite the double-digit returns Lawrence’s fund has earned most years since then, its $140 million balance covers just 39 percent of the $336 million it needs to pay its pension obligations for current and future retirees. That’s down from 49 percent in 2009.
Only Springfield and Everett are more underfunded.
The Pioneer Institute gave Lawrence’s pension fund a grade of “F” for its low balance compared to its obligations, and another “F” for the 25 years it says it will need to become fully funded. The agency gave the city an “A” for its earnings last year, which doubled projections.
Overall, the city received a composite grade of “D,” up a notch from the “F” it received two years ago.
City Comptroller David Camasso, who chairs the board that oversees the Lawrence pension fund, could not be reached Friday.
In Lawrence, as in most municipalities in Massachusetts, the city pension system covers all full-time employees except teachers, who are part of a separate fund for all teachers in the state (the teachers’ fund received a composite grade of “C” from the Pioneer Institute).
In all, the city had 1,313 employees last year, who earned an average of $42,500, and 885 retirees, who received an average benefit of 23,000, the Pioneer Institute said.
Lawrence paid about $20.4 million in retirement benefits last year, while contributing $16 million to its retirement fund. Employee contributions and the return on the fund’s investments more than made up the gap.
The amount employees contribute to their pensions depends on when they were hired. New employees now contribute 9 percent of their gross base pay, and an additional 2 percent of their pay over $30,000.
Among other municipalities in the area, Andover’s pension system received a composite grade of “D” because its fund was only 50 percent funded last year and because the town says it will need until 2040 to fully fund it. The Andover fund earned a return of 7.75 percent last year, according to the Pioneer Institute’s report.
Haverhill received an overall grade of C. Its pension system was 49 percent funded last year and the city projects it will be fully funded by 2032. The fund earned 8 percent last year.
Methuen also received an overall grade of C. Its pension fund was 47 percent funded and the city projects it will be fully funded by 2032. Its fund earned 8 percent last year.
Information for North Andover was not available.
Of the 105 public pension systems in the state – including for state employees and for the public school teachers – only the Minuteman Regional School District received a grade of “A” from the Pioneer Institute. The district has just one school, a vocational high school in Lexington that serves 16 municipalities. Its pension fund is 104 percent funded.
Eleven pension systems – including a tiny one for workers at the Greater Lawrence Sanitary District - received a “B” from the Pioneer Institute.
Public employees in Massachusetts can retire with full pension benefits as young as 55 if they have 20 years of service.